More than 75% of companies are considering adjusting year-end executive compensation plans because of Covid-19, according to recent survey conducted by Compensation Advisory Partners (CAP), Equity Methods, and Board Prospects. The survey polled 160 companies between March 25 and April 1.
Most respondents (118 of 160) had already approved their incentive plans for 2020 at the time the survey was conducted. Nearly 80% of the 118 companies had not considered the Covid pandemic when approving plans. However, approximately 70% of the 118 companies with approved plans said they were considering adjustments, 10% said they were planning on making an adjustment, and 20% said they were not planning to make a Covid-19-related alteration.
Of the 31 companies which had not yet approved annual incentive plans, 65% said they were unsure how Covid would affect the plan. Approximately 20% said they were planning to make changes because of the impacts of the pandemic.
The CAP survey found that 54% of companies had already awarded long-term incentives (LTI), which are usually granted in February. Since the crisis had yet to take its full shape (some time in mid-March), over 85% did not consider Covid implications. Twenty-six percent of respondents said they were not planning on making an adjustment at the end of the performance period, while 70% remained undecided.
Of the companies which hadn’t yet granted LTI awards, 40% said they were not planning to change the methodology that determines equity grants, despite the stock price crashes in March. Fifteen percent were implementing plan changes, 25% were considering alternative actions, and 20% said they had cash-based awards which did not require changes.
Sixty-eight percent of respondents said they were considering a change to incentive plans because of the potentially long-term decline in the economy. The top considerations were adjusting metrics to emphasize priorities such as free cash flow (22%), widen threshold, target, and stretch goal levels to smooth payouts (17%), and increase reliance of relative performance metrics (13%).
Survey co-author CAP is an executive compensation consulting firm based in New York. The firm recently launched a Covid-19 Resource Center to track the announced actions of corporations related to compensation and human capital.